Pakistan’s IT sector: a billion dollars, and still off the map

Sometime this year, Pakistan’s freelancers will earn their first billion dollars. In the ten months to April they brought home around $959 million, nearly half again as much as the year before, while total IT exports reached $3.39 billion in the first nine months of this fiscal year, according to the State Bank and Pakistan Software Export Board figures.

There are now more than 2.37 million registered freelancers logging in from bedrooms in Lahore, rented offices in Karachi and rooftops in Faisalabad, billing clients in dollars and bringing the money home.

Around the same time, something quieter happened. Lahore appeared on the World Intellectual Property Organisation’s list of global innovation clusters for the first time, joining Islamabad.

In the same period that our export dollars climbed, Pakistan fell in the Global Innovation Index, the most widely watched measure of a country’s capacity to generate new ideas.

Two milestones, weeks apart, both read as proof that Pakistan has finally arrived as an innovation economy. But they are not the same achievement. One says we are earning more by doing the world’s knowledge work; the other would mean we are learning to produce knowledge of our own. We are doing well at the first and, as the rankings show, slipping at the second. Confusing the two lets us celebrate the earnings while the thing that actually builds an innovation economy keeps eroding.

Consider an awkward fact. In the same period that our export dollars climbed, Pakistan fell in the Global Innovation Index, the most widely watched measure of a country’s capacity to generate new ideas. We now rank 99th of 139 economies, down from 87th in 2022, and 124th on the inputs that actually build innovation: research spending, institutions, skills. Despite Lahore and Islamabad finally being named, neither sits anywhere near the world’s top 100 clusters. So the dollars are rising while the innovation ranking sinks. How can both be true at once?

They are both true because earning from the global knowledge economy and building a lasting place inside it are not the same thing. A large share of our IT and freelance income still comes from the more commoditized end of the chain: writing code to someone else’s specification, designing an interface a foreign company imagined, cleaning data for a platform owned elsewhere. This is honest, skilled work, and as foreign exchange in a country starved of it, it is a real achievement. It can also be a first rung. Some firms and freelancers use these contracts to climb into higher-value products, their own intellectual property and their own clients, and policy should help many more of them make that move. But the climb is not automatic, and for now most of the value, the idea, the patent, the brand and the margin, still stays abroad. It is closer to the digital version of stitching footballs than to designing the game. What comes home is largely a wage, not yet the capacity to invent.

This distinction sits at the heart of my research on how innovation travels between cities. The clear finding, and not only mine, is that innovation is concentrating, not spreading. A small number of major global cities are pulling further ahead, and the gap between them and everyone else is widening. The places that have broken into that circle did not do it by selling ever more cheap labour to the network in isolation. They did it by building real knowledge connections to the leading hubs, co-inventing and co-developing, so that knowledge flowed back and took root at home. A city that only rents out its hands to the global economy stays at the edge of it. A city that learns climbs.

Export volume is the easy number; it is not the most important one. Alongside the dollar figure we should track joint patents, co-publications and co-invention with leading economies, the measures that actually predict whether a place climbs.

This is where Pakistan is leaving its largest opportunity underused. The country that has just entered the innovation top 10 for the first time and is now amongst those that lead the world in patent filings, is China, with which we have one of the closest economic partnerships in the region. Yet that partnership has been built overwhelmingly on energy and transport. Energy projects alone account for close to two-thirds of China-Pakistan Economic Corridor’s (CPEC) committed funding, with most of the remainder in roads and ports. The industrial-cooperation phase that was meant to build Pakistani productive capacity has lagged, and of the nine special economic zones planned under it, only a handful are in active development. Joint research, shared laboratories and co-filed patents, the activities that actually pass on the ability to invent, have barely featured. In separate research, my co-authors and I found that co-inventing with Chinese partners is one of the more reliable ways a developing country lifts its standing in global knowledge networks. We have the ideal partner for that, and have so far used the relationship mainly to build power plants and roads.

But connecting is only half the answer. Even an ideal partnership with China will do little if the new knowledge has nowhere to take root at home. A country that simply moves knowledge from one place to another, without universities, firms and researchers able to learn from it and build something of their own, keeps far less of the value than the activity suggests. Past a certain point, sitting in the middle of global flows stops paying off unless you are also learning from what passes through. The goal, then, is not to connect more for its own sake, but to connect and to learn from what we connect to.

A remittance is not a patent, and a wage is not a place on the map.

What would taking this seriously look like? First, we should stop measuring only the things that flatter us. Export volume is the easy number; it is not the most important one. Alongside the dollar figure we should track joint patents, co-publications and co-invention with leading economies, the measures that actually predict whether a place climbs. Second, the next phase of our cooperation with China should be tilted deliberately from construction and assembly toward joint research and development: shared laboratories, co-filed patents, co-supervised researchers, on terms that require knowledge to be transferred and kept here, not merely used here. Third, our emerging clusters in Lahore, Islamabad and Karachi need what turns a foreign contract into a lasting local capability: funded research, real links between universities and firms, and companies staffed to learn from a partner rather than only to deliver to one.

None of this diminishes what the freelance economy has achieved. Two and a half million Pakistanis competing and winning in global markets, through load-shedding and internet shutdowns, is a genuine national accomplishment, and the billion-dollar milestone deserves its celebration. But a remittance is not a patent, and a wage is not a place on the map. If we let the export figures persuade us that the deeper problem is solved, we will keep climbing the rankings that measure how much we earn while sliding down the ones that measure whether we can invent.

Pakistan has spent this year proving it can sell its time to the world. The harder and more valuable task, the one the next decade will judge us on, is learning to make ideas the world has to come to us for, and to keep them when it does.